It is 401 and I apologize, guys.

This meeting is now called to order.

As a reminder, this uh it's going to be recorded and recording will be available on the city website.

And then the first item we have on the agenda is the approval of the agenda.

And I'm just gonna turn it over to the general manager for a quick uh would like to suggest that we change the order of the agenda and take item 5D and move it ahead of 5A, maintaining the numbering just to accommodate our auditors' travel schedule and get them out of the meeting a little bit earlier.

So I would uh offer an amendment to the order of the agenda moving 5D ahead of 5A.

I'll move to uh approve the uh adjust the amended uh agenda for this night's meeting.

Thank you so much.

Motion second, any discussion?

Hearing none, all in favor, say aye.

Aye.

Second.

Oh, I apologize.

Second.

Second.

Thank you, Wendy.

Any discussion?

Hearing none, all in favor say aye.

Aye.

Aye.

Opposed?

Carries.

Perfect.

Yeah.

Next up, we have our safety moment or our cyber safety moment with Director of Information Technology, Mr.

Kelchan.

Thank you.

And uh so good afternoon, everyone.

Uh safety and security both start with awareness and kind of in an homage to some of our practices that we've had in the past and some of the safety moments with Bob Cook.

Uh I figured I'd start us off with a story.

Um so recently I was at a sporting event um and I happened to park in one of those managed parking lots with the meters in them.

You know, the ones where you pull in, get your number, and then you're supposed to go up to a kiosk effectively to pay for your parking.

So when I started walking up to the kiosk sign, you know, the kiosk looked right color, had all the it was the city of Minneapolis, all that kind of fun stuff on it.

But then I finally got to the QR code sticker and notice it was kind of torn on one corner.

So I paused for a second.

And it basically raised a simple question.

Is this the original QR code?

Or did somebody else place a new one over the top of it?

And this situation kind of reflects something that happens a lot now, and we've been seeing more in the cybersecurity industry, uh, QR code phishing.

Basically, where attackers place a fraudulent QR code um over the top of another thing, and they often do it in public places, um, so that when you scan them, uh you're redirected to a fake payment page or to capture your login credentials or something like that.

And because QR codes are kind of hard to visually verify, people tend to trust them more than links and things along those lines.

So the takeaway is really straightforward.

That two-second pause can obviously prevent a really big issue.

Um, if something looks altered or out of place, just don't scan it.

Use a trusted app, uh go directly to the official website for the parking place, or choose an alternative alternative payment method.

And that same kind of small habit scales.

The same quick verification step, you know, applies to links, attachments, and login requests.

And pausing is a really simple control, but it's one of the most effective cybersecurity ones that we have.

So thank you guys for your time.

Thank you so much for that.

Next up, we're gonna move on to item number three, which is our consent agenda, items 3a through 3i.

And I'll just refer you to the agenda.

I won't read out each one A through I do we have a motion to approve the consent agenda.

I'll move to approve the consent agenda as presented.

Thank you, Councilmember Keene.

Do we have a second?

Second.

Motion second.

Any discussion.

Hearing none, all in favor of approving the consent agenda.

Say aye.

Aye.

Aye.

Aye.

Any opposed.

The consent agenda is approved.

Now we come to the open public comment period of the meeting.

Uh total comment period is limited to 20 minutes.

Each person will have two minutes to speak, and anyone not having the opportunity to be heard tonight will be the first to present at the next meeting.

Do we have anyone signed up for open public comment?

There isn't anyone signed up.

Thank you, Aaron.

Next, we'll move to the consideration of bids.

Uh item number four.

Item 4A, which is a 2026 electric manhole rebuild project.

And there's no presentation associated with this one.

So I think we're just going to go to a motion and a second.

I'll uh I'll move to approve the award of the 2026 manhole rebuild project to to uh dig America.

Thank you, Councilmember Keene.

Second.

I'll second.

Thank you.

We have a motion and second.

Any discussion?

Yeah, just a question for staff.

This is the reason this is on is because of the dollar amount, or is there another reason this is on the agenda?

This is in the budget, I think.

Yeah, the delegation of authority to management caps the ability to let contracts uh above 175.

So this is a board level decision to let a contract at this value as well as our obligation to uh with sealed bids to have them open and received here.

So these are board actions for the value of the contract and the procurement process that we're using.

Is this a yearly thing, or is this something that comes up every couple of years?

If you recall, we've had uh manhole rebuilds on the agenda, at least in my tenure, if not years before.

So this is annual work that we bid each year with the goal of moving through the rebuilds on our uh manhole and underground network in the downtown area primarily.

Okay, thank you.

Good question.

Any other questions or comments?

Okay, hearing none, we have a motion, second.

All in favor say aye.

Aye.

Aye.

Aye.

Any opposed carries, and that item is approved.

Okay.

Now we have item 5D, which is the 2025 annual audit results presentation, and it will be introduced by Judy Anderson, Director of Finance, and presented by Aaron Worthman with Baker Tilley, who are financial auditors.

Hello.

Um, so we have Aaron Worthman here with from Baker Tilly to present the results of our 2025 financial audit.

Um, before I turn it over to him, I just want to give a recognition to the finance and accounting team.

They put in a lot of work throughout the year to make sure we have accurate and correct results as well as during in preparation for the audit.

So they put in a lot of work.

Um, also our procurement teams and our IT teams play a big part in making everything secure and compliant as well.

So just want to give them some recognition.

Thanks.

Good afternoon.

Again, my name is Aaron Worthman.

I'm the lead audit principal and pleased to present the fiscal year 2025 uh financial audit.

Uh I was able to meet with a couple individuals uh from the board earlier to really go in depth on some of these topics, which I'm gonna go through right now.

Uh but what I do want to do is just go through some of the highlights of that discussion that we had.

So the first thing I want to do is go through an audit overview.

You know, what exactly is it that we do as part of the audit?

Uh, want to talk a little bit about internal controls, uh, talk a little bit about our required uh auditor communication with you charge with governance, and then open it up to any questions you folks might have.

So to give you some perspective into the audit process, our team spends roughly 300 hours going about and conducting our audit.

Uh, I'd say this year's audit went very well.

I'd say if you look back at last year, maybe a couple years prior to that, there were some significant accounting changes, uh, accounting changes for leases and sub subscription-based information technology arrangements.

Uh, there was a lot of work that went into that on your management uh for your management team, having to look at the records, make the changes to the accounting, uh, things like that.

But this year, there were no accounting changes.

It was a very straightforward year.

Uh, when we came to do the audit, your management and staff were uh cooperative, readily available, uh, as always.

Uh, we maintained our audit schedule.

Um, we spend about uh three days in the fall conducting what we call preliminary audit field work.

And then the last week uh February, we spent about um one week of final field work.

Uh last day of field work was uh February 20th.

Uh, what we've done since that time, take a look at your financial statements, uh, ticked and tied those, reviewed your audit or reviewed the audit file.

Um, so we're able to opine on your financials and present today.

So our audit was performed in accordance with generally accepted auditing standards.

Those are the standards that we're required to follow as your audit firm.

In addition to that, that we also need to audit you in compliance with what we call government auditing standards.

Those are additional standards for my audit team relative to our continuing professional education, supervision of our audit team, due care, quality control, and independence.

So if we take a look below here, what I've done is I've outlined some of the major areas of testing.

And I think if you look at your financials, none of these should really come as a surprise.

You know, we spent a significant amount of time taking a look at your assets under construction, your plant and service inventory.

And that makes sense, right?

Because your balance sheet, you know, that that's the amount that makes up most of your balance sheet.

We also spend a lot of time taking a look at your unbuild revenues, accounts receivable, revenue recognition.

I'd mentioned earlier some of your test to controls over payroll, disbursements, information technology.

We look at uh current year revenues and expenses, and we'll compare those to the prior year.

And if we see any major fluctuations from year to year, we'll dig into those areas to make sure that we understand why and validate the reasons for those significant changes.

Uh sensitive estimates.

We spend a lot of time there, which I'll talk about in a bit.

And one of the things that we're required to do since you're a utility in the state of Minnesota is they have additional rules relative to Minnesota's legal compliance audit guide.

So we need to audit you in compliance with those regulations as well.

So our audit objective is to obtain reasonable assurance that your financial statements are free from material misstatement.

The end of this year's audit, your financial statements have received unmodified opinions, which is also known as clean opinions, which is the highest level of assurance that we can provide is your audit firm.

Now I'd mentioned before that we provide an opinion on your financial statements, and I talked a little bit about internal controls.

I do need to point out we do not provide an opinion on internal controls.

However, if we identify control breakdowns or lack of controls, we need to categorize those in area of severity.

The most severe would be what we call material weakness.

Next categorization down is what we would call a significant deficiency.

And that's a breakdown less severe than a material weakness, but it's it's a big enough breakdown that it would warrant your attention with governance.

We did not identify any significant deficiencies.

Now I will say, as part of almost any audit, we'll often have what we call minor control deficiencies, industry best practice recommendations, you know, some suggestions for financial statement changes, but just no, none of those rose to the level of material or significant.

I will also say if we do find minor control improvements, I'd say almost always, they are specific to information technology, which makes sense given the dynamic nature of cyber and cybersecurity and things like that.

So within your audit results letter, there's a couple of things I wanted to touch on here.

One would be your accounting policies.

So in note one to your financial statements, you'll see your accounting policies, an example of which would be your capitalization policy.

If you haven't, I'd urge you to take a look at those policies.

What we do as auditors is we make sure all those policies comply with what we call generally accepted accounting principles.

And not only that they comply, but that you're following those policies.

Now we often get asked, our governing bodies often ask, hey Ern, when we look at these financial statements, what should we pay particular attention to or what could be the limitations of these statements?

And I will say almost always it would have to do with an estimate.

So much so, in fact, we're required to point out what significant estimates are within your financial statements.

The biggest one you would have is your proportionate share of PIRA's net pension liability, accrue compensated absences, unbuild revenues, allowance for doubtful accounts on your accounts receivable, allowance for obsolete inventory, depreciation of your fixed assets, and the calculation of your leases and subscription-based information technology arrangements.

If we had any difficulties encountered in performing your audit, or any disagreements with management, things like that, any significant findings, noncompliance with contracts, laws, things of that extent, we'd be required to communicate those.

And we did not identify any of those issues.

I just know if we did identify something like that during the audit process, this would not be the first time you'd be hearing about it.

I would reach out to the board to have that discussion on a timely basis.

One item that we always need to discuss are adjusting journal entries.

Uh, this year we did not have any material adjusting journal entries, and we did not have any past or unrecorded adjusting journal entries.

We did have one in material, immaterial adjusting journal entry relative to uh Pira, deferred inflow and deferred outflow of resources and expenses.

So basically the information that you get from the retirement system, uh, that format changed this year.

Uh normally your team and all utilities management teams in Minnesota would uh utilize a spreadsheet that would determine some of these numbers.

Well, Pure changed what the format of some of this looks like.

Uh so it came out to a little bit different number than what traditionally had been recorded.

So there was an immaterial entry to fix that.

Uh next year, the good news is they're able to continue to use that methodology that Pira gave, and uh we wouldn't anticipate any entry falling out of that anymore.

One of the items attached to this letter is what we call management representation letter.

It's a letter that has all of management's representations as part of the audit.

It talks about their thoughts on internal control, fraud, uh accounting policies, uh noncompliance with contracts, laws, grant agreements, things like that.

Uh so if you haven't, I'd urge you to take a look at that letter to see what types of representations your management team is making as part of the audit process.

And then lastly, we just want to thank everybody uh for their work, counting and finance team.

Um, you know, I'd mentioned earlier we spent about we spend about 300 hours conducting the audit.

Uh my guess is if you were to reach out and ask those folks how much they spend preparing statements, answering our questions, uh, getting ready for the audit, might not be 300, but I bet it's pretty close.

Um so uh to get results like these with no major issues or findings, uh that's a testament to your management team, and we definitely appreciate their help in this process.

So with that, I'll open up to any questions anyone might have.

Any questions at all?

Councilmember Keene.

Yeah, uh thank you.

I appreciate you guys being here, and I always look forward to this.

Yeah.

One of the things is a board member that I've been watching as we move into the next couple of years is um how utility accounting works with capital assets.

Sure.

And I know I notice there's a section in there, you talk about the capital assets on your growing average, but we're always called like the estimated value.

And I don't, maybe it's not estimated.

I think you do it by book value, yeah, and you don't really estimate what the real value is.

Can you talk about like the difference between like if you'd say we invested 20 million dollars in capital assets, therefore it's worth 20 million, and that's what we carry on our books.

And and then the question is, is that accurate?

Sure.

Yeah.

No, that's a great question.

Um, a lot of pieces and parts to it.

Uh so the first thing when you look at that value, that value is at what we call historical cost.

So let's say you put a plant online and it's still functioning in, let's say 1995.

That was recorded at what it cost in 1995, and it's going to be depreciated over its useful life.

So if that useful life was 20 years every year, you would reduce that value by 120th.

Um, and that never changes.

So you could say, hey, Aaron, is that truly reflective?

If we sold that facility today, would it be worth what we have on our books, that net value?

And the answer is no.

Um, it could be worth more or it could be worth less.

Um, because it's not listed at fair value.

Now, one thing that happens.

So this year, when we looked at your capital assets, uh, we recorded those at exactly what it costs to do those or put those services in or what have you.

Less depreciation.

Will we put on the books at the full value this year's edition?

Oh, the new very good.

Yep.

So let's say sometimes you get contributions where you don't actually pay for the infrastructure.

Let's say a developer might put in water main, sewer main.

Um, what we do is we make sure that you did record that at its acquisition value, which means if the developer put it in for 100,000, we as auditors want to make sure that your utility recorded it at that acquisition value, which was 100,000, which should really represent the you know the fair value of what those facilities are today.

Um, so that's kind of the difference.

But the longer it goes, longer time period changes.

Uh, just remember all those assets are recorded at their original uh original costs, and we do not change those values to appreciate for uh passage of time, uh fair value changes, market values, things like that.

Does that make sense?

Yeah, it makes sense, and I think that's how most groups do it.

It's just yeah, it it also would tell me you shouldn't make decisions based on those kind of numbers.

Not in a vacuum, no.

That's correct.

Do we have some uh uh producing assets that are on our books for zero right now because they're over 20 years old?

I would imagine some of our older yes.

I think the longest depreciation schedule we would use on any asset is probably in the 40-year range, 80 years for pipes.

Yeah, depending on the class of asset.

We have oh okay, we have pipes that have been in the ground over a hundred years.

Right, but I didn't know if we started out the this whole thing about you start out with a 20 or 30 year and it doesn't follow that, but I think our accounting has to stick with what we're doing.

We depreciate on its expected life value, but many of our assets serve much longer than their expected life value.

I think gas turbine one GT1 may be an example of that.

And in some cases, we reinvest in those assets and renew some capital value with based off of reinvestment on those but only based on real reinvestment, not on the cost we put into that.

Not on projected value that's never in our we don't put it in at a replacement value.

We don't consider those.

So it's just the accounting treatment of capital.

My questions are sort of a combination that we're about to start growing our uh on on our electric side.

We're gonna start growing our generation assets.

And I and I think we've kind of talked about that in terms of what would it do to our bonds, things like our bond ratings.

But I'm also trying to understand when I look at the audited books, what what kind of numbers am I seeing?

And then sort of the question is does the management team carry like a real value or replacement value anywhere that's not on these sort of audited books, not on the financial things, but more in the management accounting side.

No, we don't really um keep to you know, like a um a value or market value adjusted books.

Um in agriculture, you do.

I've done that in previous lives.

But uh the only the only place where I'm aware that we are mocking the market would be investments.

So the reverse is also true on the assets.

If like when we decommissioned Silva Lake, we actually that was an embedded asset, and we had to write it down.

So we don't mock them up, but we will write them down.

Yeah, it's a very conservative look, right?

Yeah, yeah, it is.

But it might things are more like from my perspective.

I'm gonna I am expecting our you know asset values to be going up in the next couple of years.

And I and I don't, and they're gonna be offset by debt, I think.

Um, so I think it's the books are gonna be fine, but I'm just sort of under trying to understand um that if you look at that and say, oh, based on this, we need other I I don't think it'd be a good set of financials to look at to make this management decisions.

It would be a good tracking of our financial history.

Yes, it's a good tracking of our financial history.

And part of what I think you may be describing is in the case of our 20-year financial forecast.

We're looking forward at what future additions we need to make, what investments we need to make, what our cost structures are gonna be.

So we have other areas of our accounting and finance where we're projecting forward based off of actual cost and what replacement value would need to be to replace some of these assets.

This is specific to audit balance sheet and net position here.

Serves a different purpose.

Yeah, no, thanks.

I appreciate this.

And and I really do appreciate you pointing out that idea of like the risk with estimates.

I think that's an important thing for us to understand as a board.

But um again, I appreciate your work, but I also appreciate the staff sort of like uh staying on top of this, especially as we get into these years of change.

Maybe just offer one point that reveals something that I think you're asking about when we had GT1 last year, we had an insured value on that, and the replacement value is significantly higher than the insured value.

And so it revealed, I think one of the points that I think you're trying to make is we have a book value of our assets, and then we have what it actually costs to build and put those in new in the ground.

So as we look forward, we project on what future assets are going to cost, but this serves a distinct purpose for audit and proper statement of our financial case today.

Very good.

No, thank you.

Good discussion.

Are there any other questions for Mr.

Wortham?

Well, I just want to say uh Judy and Aaron both just thank you as someone who's involved every year, all the time in extensive audits working at a financial institution.

This is just a the final culmination of hours and hours of work.

And that's exceptionally clean.

And thank you for all the diligence you put in too with the 300 hours.

Sure, making sure we're clean.

And thanks for coming to present to us today.

I appreciate it.

So we have the uh presentation and the questions.

Um now we need a motion to approve uh item 5D.

I'll move to accept the financial audit report and place it on file.

Thank you.

We have a motion.

Do we have a second?

One second.

Thank you so much.

Moved and seconded.

All in favor of approving the uh resolution of the board packet, page 66.

Please signify by saying aye.

Aye.

Aye.

Any opposed.

It's approved.

Thank you.

Next, we'll jump back to item 5A, which is the Kelmer Booster Station Engineering Design.

And this presentation will be by assistant general manager of operations, Mr.

Blomstrom.

Good afternoon.

The packets today include agenda item 5A, which has a recommended resolution for authorizing expenditures for the Kalmar booster station.

I wanted to give just a few slides on the purpose and need of the project, and then talk a little bit about the design process that is underway or will be underway, and then a cost estimate for the project.

So we understand going into this in the initial phases, how much the project is expected to cost.

As elevation increases in a water system, the pressure decreases.

And so that creates another level of challenges in that we have to manage the system in individual pressure zones.

So throughout the early years, it really was an expansion of the yellow area that you see there, and that's our main pressure zones.

But there were certain points in time over the past decades where development hit the fringes where the ground elevation reached a point at which we could not sustain enough minimum pressure.

And then the water system had to become boosted and it created separate pressure zones.

So over the years, we end up with about 18 different pressure zones in terms of data, datum.

But then we also have intermediate zones.

So all told there's pressure areas throughout our community, somewhere in the 25 to 27 different individual pressure areas.

But we look at them in terms of datum or elevation.

So we have about 18.

But there are eight key high pressure zones in our system.

And those are areas that are truly boosted up through either wells or booster stations.

And then we need to have individual elevated storage to support the supply of those zones.

And so there has been a lot of investment over the many decades to build that out.

Once a pressure zone is established, then it is there and available for to continue growth until it grows out to the point where it reaches yet another upper threshold of the pressure zone.

So I'm just focusing in on the northwest area of the community.

That is where we're seeing the greatest level of development that's been coming in in the last few years.

And I highlighted three areas there on the slide.

Area one is Prairie Ridge.

It was a 900 unit residential subdivision that came in.

Then just to the northeast of that, um, along Valley High Road, uh, there was Badger Heights that was also uh phased in last year of 87 units.

Um, and those fell into the Northwest High area pressure zone.

So you see them shaded in red, and you can kind of get a feel for how the system is in a incrementally growing out as we uh bring in larger transmission mains and the dark blue and then the distribution means in the lighter blue within within those projects.

But I draw your attention to the area that's marked three, and that is the Pebble Creek project.

So that's an example of a project where we finally hit the upper threshold of the Northwest High Pressure Zone.

Um, and that is in ground elevations that are getting so high that is uh resulting in us needing to again boost in and create yet a ninth uh pressure zone, and likely the last major high pressure zone uh that is expected in the next 40 years in the distribution system.

So it's a big step.

Uh this slide just shows uh illustrates the general layout of the Pebble Creek subdivision.

Um it is uh somewhat of an advantage when you hit these threshold marks that the next project in line to trigger it is a large project just because there's a fair amount of upfront work and capital investment.

And so a 930 some unit residential uh subdivision is a fairly large subdivision.

That will not occur all in one sweep, but it's coming in in phases.

If you drive out there today, there has already been a fair amount of mass grading on the site, even last year.

So good project and a strong contributor to the economic uh growth of the city.

So a couple of months ago, um, the board talked about some of our preliminary results uh from the master planning study.

We looked at water demand projections.

Um, but the other big result that we've already been able to receive from the master planning study is we have defined the outer uh perimeter of what our ultimate build-out uh water system uh boundaries would be, at least through 2065 and beyond.

But not only that, this exercise went ahead and delineated how those individual pressure zones will grow within our service area.

And so that's all of the colors that you see on this map.

But what we're talking about today is that yellow area in the upper left.

That is the creation of what is proposed to be the CalMar pressure zone with being created with the booster station that's being proposed.

In the documents in your packet, it talks about 1700 acres, which sounds like a lot.

That is not all of the gold or the yellow area.

That is just the northern piece.

As that would grow out in the future, extend down County Road 3, and then it opens up yet again in the southern area.

Um, those will likely require additional infrastructure, either water supply or boosters.

But the booster that we're proposing to uh design and build today would serve the first essentially 1,700 acres, the northern third of that.

Um, but that does bring the growth area all the way out to what is uh likely the interface between Byron and Rochester.

So that's kind of where we're we're hitting a boundary point here.

So I won't get into a lot of details on the technical side, uh, but we did complete a preliminary planning study.

Uh, we wanted to determine configuration, what is this pump station generally look like and contain its capacity that it would be needed and the costs.

And it's a little bit tricky to build a pump station for the first time that is going to ultimately serve a very large area.

Because on day one, uh, when it goes live, it's sort of really only one street, maybe a dozen homes, and then it becomes a block, and then it becomes a hundred homes and a thousand homes.

And so these uh facilities really need to scale up.

And we do that by designing it for ultimate build out and setting pump bays in there.

And then uh in the initial years, they can be very small pumps.

And then as the demand grows over the years, those pumps can be pulled and swapped out for larger pumps.

And we don't have to rebuild the pump station or do major rehab work.

Um, the core facility is there to serve for many years in the future.

And that really is the best overall long-term investment and how to go about establishing one of these stations.

Um, it is interesting in the fact that in the early years, uh, the pumping is fairly low.

Uh, we do have to design for the peak hour demand.

And that as that grows throughout the years, you can see that you cannot put large enough pumps to meet the peak hour demand.

Uh, it's just not economically feasible to do that.

And that is when elevated storage comes uh into play, and that's why elevated storage tanks are in pressure zones, and that that's the extra capacity to meet those peak hour demands.

So it's kind of this evolution of these pressure zones that we already have today.

We're creating uh that whole process today.

All that being said, um, it will initially function without elevated storage, and for that reason, it needs to have a backup generator and automatic transfer switch.

Because if you lose power for even a minute to 90 seconds in a pressure zone with no elevated storage, it will depressurize very rapidly.

So that is included.

Uh cost estimate.

Um, the basic facility construction is estimated at uh 1,150,000.

We do have instruments, controls, comms, and process integration.

And this is infrastructure in infrastructure that will allow this to expand many years into the future at a 208,000.

Uh, have a planning design and all the way through construction administration estimate of 367,000.

And then we have a project contingency of 407,000.

That's a pretty large and percentage-wise to the project estimate.

We're trying to be a little bit conservative here until we get it towards at least through uh initial design.

And I think that percentage will come down certainly with the contingency.

But all told it's estimated 2,133,000.

We have been working with the developer of Pebble Creek.

Um, they've been very good to work with.

Um, they have agreed to provide the land, the parcel or the site to build the facility.

Um, they've agreed to rough grade that site for us at their expense and provide the suction and discharge water main connections into the pump station at their expense, as well as offering a financial contribution of 322,000 uh towards the initial project costs.

That leaves a balance of about 1.8 million uh that will need to be funded.

Um we do have an item next on on your agenda uh 5B to talk about how we go about doing that.

Um, but I will say this is an example of a uh a direct development related expense.

And we have been trying to be conscious, if not minimize the amount of development costs that are being paid by existing rate payers.

So that, and we've talked about this as as board in board meetings is a big part of the master planning process and trying to get a firm understanding of what those costs are.

And then that leads us into a financial study of how we structure development fees so that existing rate payers aren't taking a majority of the burden for growth.

Um, and so more to come on the next agenda item.

But this agenda item is really looking to authorize up to 250,000 uh for the design piece of it.

So two recommended actions.

One, uh, we have a resolution authorizing expenditures up to 250,000 for engineering uh design for the Calmar booster station.

Um, that is in the 2026 budget under the capital allocation for water distribution system expansion.

And then we also wanted to follow up with again the next agenda item to talk about how we would propose uh to fund this long term for the total project cost.

With that, I'm available for any questions.

Thank you, Todd.

Appreciate it.

Um, can we get a quick motion and second and then move to the discussion part?

I'll make a motion to approve a resolution authorizing expenditures of up to 250,000 for the Kalmar booster station engineering design.

Thank you.

I should have said that's the resolution on board packet page 57.

Sorry about that.

I'll second that.

Thank you.

We have motion second, any questions or discussion.

I I I do have just I just can you oversimplify and just the the relationship between a booster station and a tower?

Sure.

So um booster stations, you you try to certainly design them so they meet the average day demand and peak day demand.

And so they have a certain pumping rate.

But there are times in the day that have very intense water demand, just very spiky, either in the morning or the late afternoon hours, or if you have a fire fire flow demand, those are very high and typically exceed the pump station capacity.

So eventually when a at a pressure zone gets large enough, you want an elevated storage tank and you calculate how big that elevated storage tank would be to make up the difference between how much the pump station can deliver in a day and how much, for example, your fire flow demand would be.

And then you also estimate if there's power outages with the booster station, it's down for three hours, it can carry that demand.

So that's actually how we size water towers is by the fire flow demand, average day demand and the pump station capacity.

So it appears the the pump stations have really much more control, and then the towers or the elevated water is more of the backup.

Yes, that's one way.

Yeah, that's the way to think about it.

And then I I mean, I really do struggle with this construction thing because I really do like the policy of saying new development should pay its own cost, it shouldn't be put to the ratepayers.

But it appears that every once in a while we hit a step function, like that the next hundred houses are going to push us towards something or um and then it's unclear to me that the new development should carry all of that.

Do we have a way of kind of dealing with that?

We do.

And I think this is almost an interim measure on this slide.

When you see the 322,050, obviously that's not just an arbitrary number.

What we're doing there is we're looking at that first 1,700 acres that this booster station would supply and comparing that to the amount of acres that it will serve within Pebble Creek, and that is a percentage of their share of the cost of that booster station.

Um again, the land dedication and and some of the connections come along with being the first developer in the door to help make it happen.

But when we look about getting the when we we're getting towards completion of the master plan, we want to almost regionalize that.

So it's very similar to what sewer does.

They collect fees by the acre, and those fees are calculated to make sure that enough revenue is generated to pay for all the infrastructure that's needed.

So okay.

Very similar.

And then last question.

Can I add something to that as well?

I I wanted to call attention that there are development related fees that are charged to the developers that are in city code and have been established.

One is the water availability fee.

That funds only tower storage.

So there is a fund that is building that this development and others will pay into water availability fee, and that ultimately will be drawn from when future tower storage is needed there.

Items like booster stations, well pumps, even transmission mains, those historically have been primarily rate funded.

Um this is a case where we are negotiating with the future development for a contribution towards that, but there's a lot of investment here that needs to be made that'll ultimately serve future customers.

And so as Todd said, we're we're close, we're spanning a gap here to when ultimately we will be bringing a recommendation to adjust our water development fees to appropriately collect for booster stations with established fees that's built upon the comprehensive master plan.

We kicked off that effort in 2024.

And so we won't have those answers in the completed plan until probably early 2027.

So this is a short-term measure here.

And so a booster pump is the only viable solution to meet this higher high pressure zone.

It could be met with a new well and a tower, but we can't drill a new well at this point.

So it's it's the best option that we have at the moment.

Yeah.

Good.

No, I'm supportive.

I I guess I my last question was going to be if the 322,000 contribution is based on the water access fee, or it's a totally separate thing.

It is separate, and that's an excellent question.

Uh Pebble Creek will be probably will be paying, I would estimate about 1.2 million on availability charges on top of this.

Right.

And that again, water storage.

Yeah.

Including in-kind contributions with this does the 322 include the land dedication.

No, that's cash.

So there's additional value of uh land and infrastructure that comes with that that'll later be later be received as a contributed asset once that's ultimately done.

So the development is paying a significant portion of this.

It's just that this needs to be built to serve 1,700 future acres that won't be developed in the short in the near term, they will be.

But um, this is a this is another generational investment that we're making to expand growth in this area.

Thank you.

Any other questions?

Well, I just Kelsey.

Okay.

Well, I just want to say it's exciting to be uh part of such a growing community, and I'm just really proud of the way that RPU is supporting that growth and continues to do that.

So thank you, Todd.

Um, so we have a motion, second.

Um, all in favor of approving the uh resolution uh on board packet page 57 signify by saying aye.

Aye.

All right, aye.

Any opposed.

The resolution is approved.

Next, we move to item five B, the reimbursement agreement for the 2026-2027 water fund capital expenditures with assistant general manager administration, Mr.

Hogan.

Thank you.

And I I should stop by saying thank you to Todd for going before me and explaining all the the detail behind this.

So I get the easy part of okay, how are we gonna pay for this now?

So um, but um exactly what Todd was talking about.

We're looking at you know the significant growth of uh core infrastructure here.

If you just look at the raw dollars as I had in the FBA, uh breaking down what we uh potentially looking at just in 2026 for the remainder of this year, we we could be looking at up to around six million dollars, which is beyond what is in the current uh capital budget, and it's also beyond the um the cash available within the water utility right now.

So we will be coming back to the board uh later later in the year to talk more about that as we have more information pulled together.

But the purpose of this resolution is to preserve our ability to go back, uh, issue debt um and be able to reimburse ourselves for these expenses.

If we waited until after we've got all the other pieces in place, uh we wouldn't be able to reimburse ourselves because we have to make these resolutions before the funds are expended.

So uh the the uh the resolution you just passed for the uh engineering work would be a good example of that.

So that's the purpose of this uh resolution.

Thank you.

Um so the regarding the resolution on board packet page 60 and 61.

Um could I get a motion and second and then move to any discussion or questions?

I'll move to approve the reimbursement agreement that enables the funding of qualified projects for future bonded issuance.

We have a motion.

Do we have a second?

I'll second that.

Thank you.

Any discussion or additional questions.

I just want to understand that your last thing there that these, I mean, this the all the housing stuff is a little bit of a budget surprise, and that this is not covered in our in the 2026 capital, and this would have to be the future resolution to budget adjustment.

They'll end up being a budget uh adjustment request that will have to come through for a number of these uh projects once we have them um scoped out in more detail.

Um so this is really um you know, preserving our option to go back and and uh uh and how to fund those with with debt going forward.

Good.

I think to put this in context too, we have done this before.

So last year we did the the debt resolution uh or reimbursement resolution for the um the uh Mount Simon station for the transmission investments.

So yeah, I it in the water utility though, it was in for the lead service line in the and so we we did this almost a year ago, actually, the same uh kind of resolution.

Um so that that's kind of the purpose here is to give us the ability to manage that.

And just Peter, between the board, just for the record.

I mean, we just talked about the CalMR, but this is also other projects.

Yes, uh the in the um FBA there, I've listed about three or four different ones there.

18th Avenue project.

So there's there's multiple ones coming in.

Uh while the resolution was for 250,000, you know, the that one project for the CalMR is you know in that two 2.1 million uh range.

So we're looking at that um some of the oversized water main looking at around 450,000 a year.

Uh it might be a little bit higher than that uh this year.

I just wanted to add one.

I the projects that you see listed on your agenda items, those are all growth-related projects.

We're not proposing any uh replacement aging infrastructure projects as being debt funded.

Just a clarification.

So can you clarify that?

Because it says 18th Street Southwest, but I thought that was actually 18th Avenue Southwest.

It's it's 18th Avenue, and it may feel like a reconstruction from a transportation city public works perspective, but that's new water main extensions.

You're right.

Okay, now I understand what you mean by that now.

Thank you.

I just wanted to add a point here too.

You had mentioned coming back later for an appropriation.

Just wanted to be clear the reason we're doing a reimbursement agreement, is we will be coming back later, not only for a budget amendment, but for a recommendation to issue debt.

So there is a debt funding ask.

Both of those will require a recommendation from this board and a future city council decision is the only authorized body to issue debt as well.

So we're working on the financial case, and we will be coming back later at a future date for the budget amendment and for the debt issuance recommendation for a short-term debt vehicle to fund everything we're talking about here that ultimately we can reimburse ourselves from from that future debt issuance.

Great discussion.

Any other questions or comments?

Okay, we have a motion and a second to approve the resolution for the reimbursement agreement for the 2627 water fund capital expenditures.

Um all in favor of approving the resolution on board packet page 6061.

Please signify by saying aye.

Aye.

Aye.

Aye.

Any opposed.

The resolution is approved.

Thank you, Peter.

Thank you.

Next, we move to item 5C, which is the budget amendment for the 2026 electric utility budget related to Silver Lake Dam.

And this presentation will be made by Assistant General Manager of Operations, Mr.

Todd Blumstrom.

Very good.

I'll start over really quick.

Uh background, uh Silver Lake Dam was constructed in the late uh 1930s.

It was not constructed by RPU.

Um, but it became a very important asset to RPU in the mid to late uh 1940s.

This is Silver Lake Power Plant began utilizing Silver Lake um for cooling water.

But it did remain in the city until, as the story goes, 1951, there was a severe flood.

And at that point, the city turned the dam over to RPU to for the operations and maintenance.

And we've been operating and maintaining the dam for nearly 75 years now.

And it has come with some investment, and we have maintained it in good condition.

But it has diminished operational value for RPU today.

The power plant, at least that portion needing cooling water at Silver Lake, retired in 2015.

So for the last 10 years, we've been operating and maintaining a dam that doesn't serve a direct operational purpose for RPU.

The city public works and parks department have plans.

I think most of us are well aware of that of redeveloping the area around Silver Lake and a new concept for the dam, including removing the existing dam structure and replacing that with what they call Rock Arch Rapids.

This is a rendering of what that project would look like.

Certainly some pedestrian trails, even a pedestrian bridge that you can see there on the figure.

And these are very nice improvements.

And as they're getting through the permitting process and refining the final design, they're getting closer to what they want to deliver as a project.

I say it in that context that from RPU and our business perspective, we have a dam that we have not used for our operations for 10 years.

It is expensive to own, it's expensive to operate.

It is over 90 years old, and there is a fair amount of risk in owning a dam, even a low head dam like Silver Lake Dam.

And so this is an opportunity for us to transfer ownership of that management of the lake level from RPU and certainly reduce a large amount of our risk in the ownership process.

So we do go through periodic inspections and maintenance inspections of the dam.

The most recent uh condition assessment was done in 2024, uh, and it identified uh certainly some growing maintenance needs for an aging structure of this type.

Um there's concrete repair on the right abutment.

Um the lower left picture, uh, which is a little bit hard to see, but those are the leaf gates.

Those are rotated up for that picture.

It was taken during the inspection process.

And you can see some water leakage out of there.

So there's expansion joint repairs that are needed.

There's some maintenance on the leaf gates themselves.

Uh, and what's even harder to see, but you can sort of see it in the lower right all the way to that abutment, the vertical abutment.

There are these large hydraulic cylinders that rotate those leaf gates.

So those the elevations can be changed to adjust the water level in Silver Lake and release more water over the crest of those leaf gates.

Um, but in the lower left, uh during really high flows or flood flows, those are tainter gates, and those can be rotated up and they release a tremendous amount of flow through through those gates.

Um in flooding situations, the bulk of the flow is coming through the tainter gates.

They work well to pass water over the dam.

They almost inevitably create scour and erosion downstream, downstream of the spillway uh along the bottom of the river.

And those scour poles or erosion, they need to be fixed from time to time.

And we have done past repairs uh to address those things.

So uh the overall cost estimate from that condition assessment identified 2,012,000 uh in repairs that were needed uh for the dam for those some of the bullet points that I shared on the previous screen.

One thing that the assessment underestimated, and we've come to realize with public works designing these rock arch rapids is the extent that the DNR would require us to take to address the scour holes.

It is not simply dumping more riprap in the river where there's a hole, and I think that's been a little bit of the past practice.

Um, but they are uh the state and for good reason, uh, are likely requiring more um stilling basins, modifications of the spillways uh and armoring uh of the river downstream, and that cost is is significantly more than we had estimated in past years, as well as there is a cost to owning and operating a dam.

There's the staff that need to maintain it and do minor repairs uh from time to time.

We actually operate the dams.

We have to monitor the lake level and adjust the crest of the leaf gates uh or open the other gates when you have high flows.

We have SCADA monitoring that system.

All that being said, 20 years of estimating that, about 653,000.

All told over the next 20 years, we estimate that there is a cost liability of 3.4 million for the dam.

So when it comes to discussions with the city, and what is a fair contribution from RPU towards the project that they want to deliver, our perspective is what is the actual avoided cost that we're looking at from RPU's perspective to have the dam removed and transfer the responsibilities to other city departments.

We did the net present value with a 5.5% discount rate, brought the cost down to about 3,09,000.

So that is a payment today.

What is a fair payment today to avoid 20 years of future cost in the future?

There's not a big delta between uh the net present value and the 20-year estimate, and that is because all those maintenance needs are due now.

So they're not delayed much in the future.

Um, usually there's a bigger spread between actual and net present value.

So we've had that discussion with public works.

Um, they believe that is a fair settlement.

Um, and in the electric uh utility budget today, we have two million dollars.

Um, so it's a substantial increase.

And again, that is uh getting a more accurate accounting for the scour and erosion repair costs and then the avoided operation and maintenance costs in the future.

So what we are proposing is a resolution approved the 2026 electric utility budget amendment.

Um so we would be adding 1,009 to the capital expenditures.

Uh there's three or two million already today that would bring that total up to 3,900.

Recommend that the Rochester City Council approve the budget amendment and then authorize the expenditures to take place.

With that, I can answer any questions you may.

Well, thank you.

Could we get a quick uh motion and second before moving to discussion?

This is on the budget amendment for the electric utility budget relative to Silver Lake Dam uh 2026 electric utility budget.

I'll I'll move to approve the resolution.

And I'll second.

Motion second, any discussion or questions for Mr.

Blumstrom did one clarification.

I never for some reason I thought at some point this was uh uh since it was RPU owned that was generating electricity, but it never did.

But I think the water was used to cool the the coal burning plant.

It was, yes.

And so that intake is not right at the dam.

That's farther up, yeah, uh closer to the plant.

Those facilities have been bulkheaded, haven't been used for years.

Um, but yes, that it's important historical thing here because that is why the geese stay in the lake all year round.

Because the no, it's it used to stay because it because if it wouldn't freeze, yeah, wouldn't freeze.

Yes.

Yeah, yeah.

There's one additional historical point that you might be interested in in the mid-1990s, the dam was rebuilt.

And so it used to be a taller, all concrete structure.

It was lowered and the leaf gates were added as a flood control device.

So as it operates today, when river flows come through, the dam gets out of the way, the leaf gate lay lays down and it uh allows flood passage.

So the dam holds back water for recreation for keeping the lake there and it lays out of the way and opens up when water flows.

Those are the two current purposes of that dam as it exists today.

And again, just from historical, do you know if RPU paid for that or did the flood control project pay for that?

Related to the leaf gate investments?

Too far back.

I I would have to take that as a point of research, unless you know, Todd.

I don't know for sure, but I think it would be relatively safe to assume RPU probably covered those expenses.

Okay.

Or a bulk of them.

I'm curious as well.

So I'm going to research that question.

And I if that answer is different than we just shared, I will get back to you.

So, Todd, can I ask uh at what point do you think legally we stop to be responsible for the dam turn off SCADA, you know, stop monitoring stop looking is the moment that it gets blown up or I mean gets removed or modified, modified.

Good question.

Um, so uh I think the intent is to uh for the city public works department to get the project out to bid, assuming the bids are successful, contract is awarded, uh demolition begins once demolition begins, that the the structure itself essentially becomes under the control of the contractor, and I think that is the point at which that point we're out and yeah, it's sales on.

Okay, good.

I would add one additional point there.

Part of our contribution also is to repair the downstream scour there.

So those investments as well are a part of the contribution.

Um so those also have to come to fruition.

I believe that work may be incorporated into the contract.

So and then just to clarify after the project is done or completed.

Yes.

And I think in the the resolution that will go before the city council, we're probably gonna add a little statement to clarify that that the transfer of responsibilities upon completion will not be our PU.

I'll figure out a better way to word it.

But and Todd, I apologize for kind of pursuing this angle of questioning because I know you weren't here when this all started, but before I came, before I think any of us were here, you know, we already gave a bunch of money for this, and now we're back again for a second bite of the apple.

And is this kind of the end?

This is we won't get another million, you know, tagged on.

I guess until you dig dive into the scour holes, you won't probably won't know for sure the liability or um so the the agreement that we have reached with public works is that this will be the final settlement, including the scour repairs.

Um it will assuming that it's it's approved by the city council.

This is our contribution.

They go into the the bidding process with the risk of costs coming in above or below.

Um yeah.

Gotcha.

Thank you.

Just a point of clarity there as well.

We have committed up to two million previously, as the board has those funds are still held by RPU.

There has not been any contribution made yet.

There's been a commitment made, but the we still have the two million within the budget.

I don't believe those have been transferred.

Um, and then so this appropriation would add to that commitment.

And at the time when the project is executed, those funds would be sent and contributed.

Got it.

Any other questions or comments?

Hearing none, we have a motion and a second.

Uh, all in favor of approving the budget amendment for the 2026 electric utility budget relative to Silver Lake Dam.

And this is the resolution on board packet page 64.

Uh please say aye.

Hi.

Aye.

Any opposed.

Hearing none, the resolution is approved.

Thank you, Todd.

Next is the informational section of our board meeting.

There are no informational presentations or items at this time to come before the board.

So we're going to move next to board policy review.

At which time I'll turn this over to General Manager McCullough for discussion.

No change to our intended schedule.

We still are making progress on the review of the financial policies and uh working through also the previous review of the one the worker safety policy.

So we have two open policies under review.

Um, we do anticipate bringing those back to the board, uh, yet to be determined schedule.

The city, I believe, has the financial policy review for city council scheduled for May 27th, and our financial policies are a compendum to that.

So I think we'll walk those in parallel as they um as the city council also considers.

And we're good for everyone assigned to those.

I forgot about the uh ad hoc groups are already assigned.

We're good.

I think everyone knows their assignments, so we'll just continue to make progress on those and bring them back at the right time.

Thank you.

Well, next we'll move to the general manager's report and stay with uh general manager McCullough.

I will not read my full report to you, but I would be happy to uh take any questions.

We do have it queued up if the board would like to uh dive into any of the topics um that I put.

I did a a deeper dive on uh solar because there was a number of questions that came in from city council during a study session related to solar rebates um with the grid access fee as well.

I think there's a number of kind of areas of that space.

This is kind of my intended future um structure of the GM report to send it as a monthly um read-ahead in the same style that city administration and other charter board leads also communicate both to their boards and to the city council as well.

So I'll just uh speak to any topics in case there are questions.

Are there any questions or comments on the general manager's report?

I know it's in here, but I thought it'd be good to hear about the flux project or ERP as I would call it.

Yep.

Uh yes, if you would wouldn't mind accelerating to page 20 five in the report.

Project Flux is its new name, so we don't have to argue over how to pronounce ERP anymore.

But this is a significant investment that is being made across the entire city organization.

The board will recall that we uh made a board decision in December that was supported also by the city council's uh decision to contribute also to upgrading our enterprise resource planning software.

Um this is north of a $30 million investment across the entire city um organization, and we are in the throes of the project kickoff.

Uh we have dozens, if not more, people from all across the city gathering in this building on a daily basis over the next six weeks to work through the initial configuration to bring two large financial softwares together into a single solution.

Kickoff was very successful.

Um had a lot of excitement and trepidation from the team.

Uh, this is significant work that's happening.

Um it's been uh received well by the team across the city, and we will be bringing more information back at a future time, but I think it's worth highlighting the significant efforts that are going in even now with our IT teams across the organization, with our finance teams, with our asset management teams.

It's a big lift.

Almost everyone in this room has sat through hours of meetings, uh, plus our full teams, in addition to the rest of the teams across the city as well.

So project flux, you'll be hearing more about it.

Um the schedule roughly for RPU is uh weighted primarily in phase one, and that will be between now and really the spring of 27 is when our projected go live is for the phase one, which is our asset management, the Rochester public utilities financials, and some of the human capital processes that are in in concert with that, culminating with phase two, which will be completed by the end of 27.

So this is a 18-month-ish endeavor in the near future, um, supported by hundreds of people across the city.

Thank you.

Good question.

Any other comments or questions?

Well, I just want to say real quick, this is an incredibly well done GM report.

The level of details appropriate, the topics reflect all the varied and really hard things you guys are doing every day here.

And I just I really enjoyed reading it.

And it's uh just a really nice upgrade.

Thank you for bearing with my silliness as well.

Um tried to make it at least fun to read, hopefully.

Awesome.

Okay.

Uh next we're going to move to the division reports and metrics, which uh is item number nine uh for April 2026.

Any questions or discussions from the board based on the division reports and metrics.

Okay, hearing none.

Is there any other business we have to come before the board tonight?

Hearing none, I will entertain a motion to adjourn tonight's meeting.

I'll move to adjourn.

We have a second.

We have a motion, second, all in favor of adjournment, please say aye.

Hi.

Any opposed?

We are adjourned.